In the financial market, one of the most widely discussed subjects is the impact of the Selic rate on investments. As the Central Bank's main monetary policy instrument, the Selic serves to control inflation, stimulate economic growth, and maintain financial stability, in addition to being the country's benchmark interest rate.
Its fluctuations directly influence the returns on various assets, affecting both fixed-income and variable-income investments. Understanding how changes in the Selic affect investments is therefore essential for anyone seeking to make more informed financial decisions, whether a beginner or an experienced investor.
What Is the Selic Used for, and How Is It Calculated?
As mentioned earlier, the Selic has the basic functions of controlling inflationary pressure and stimulating economic growth by making credit easier to access. In other words, a lower rate will allow you to obtain loans and financing on more favorable terms, functioning as a kind of stimulus to consumption.
The opposite movement—a rise in the rate—makes it more difficult to access credit under the same conditions and therefore acts as a disincentive to consumption. This happens because banks use the Selic rate as a "benchmark," meaning a reference value for evaluating their own investments. A higher Selic rate thus signals to banks that they need a greater return for every real that leaves their coffers for consumers, making financing rates, loans, and other credit-access services more expensive for the end consumer.
But how is the Selic rate calculated? It is determined by the Monetary Policy Committee (Copom)—a Central Bank body composed of its president and directors—through a complex process that takes into account several factors, such as the supply of and demand for credit, inflation behavior, monetary policy targets, and the country's economic outlook. The calculation also involves analyzing economic indicators and assessing the international landscape.
Every 45 days, Copom meets to reassess whether the rate is consistent with market expectations and results. Once defined, the Selic rate directly influences the cost of credit and the returns on fixed-income and variable-income investments, in addition to affecting consumption and corporate investment.
It is therefore clear that monitoring and understanding it closely is essential for investors, businesspeople, and consumers, who can adjust their strategies according to changes in the benchmark interest rate.
How Can the Selic Affect Different Types of Investment?
Now that you understand what the Selic rate means and its various implications for your financial life, let us examine some examples that demonstrate how it can affect different types of investments:
Impact on Fixed-Income Investments
Fixed-income investments are those in which the investor lends money to an institution (government, bank, or company) in exchange for predefined compensation, normally using the Selic rate as a reference. In other words, an increase in the rate signals that investments of this type will provide greater returns. Some investments in this model are LCIs, LCAs, CDBs, and Tesouro Direto bonds linked to the Selic rate.
Impact on Stocks
Fluctuations in the Selic rate also affect investments in stocks. When the Selic is reduced, investments linked to the rate lose some of their appeal, favoring stocks and other variable-income assets whose returns are not tied to the Selic. This results in increased activity on the stock exchange, where shares are traded. Consequently, stock prices tend to appreciate with this movement.
Conversely, when the Selic is higher, fixed-income investments offer greater returns and lower risk. As a result, investors may choose to transfer their resources from the stock exchange to these investments, potentially causing stock prices to fall.
Impact on Real Estate Investment Funds (FIIs)
Real estate funds are a type of investment that allocates resources to real estate projects such as commercial and residential properties, shopping malls, and others. These assets are traded on the stock exchange, and returns from portfolio results are distributed to shareholders.
The Selic rate has a major impact on consumption, as mentioned earlier. Thus, a possible downward fluctuation in the Selic tends to stimulate consumption in general, including the real estate market. This movement should increase demand for properties and, consequently, the value of the real estate assets held by the funds.
Impact on Foreign Currency Investments
Investments in foreign currencies can also be affected by fluctuations in the Selic rate, but this normally occurs on a smaller scale. The reason the Selic affects this type of investment less is that it depends much more on the international economic situation than on conditions in the Brazilian market.
Even so, an increase in the Selic may attract foreign investors to the country, increasing demand for the Brazilian currency and consequently causing it to appreciate. This "attraction" of foreign investors to the Brazilian currency can be explained in economics by interest rate parity theory.
In short, the theory says that if the interest rate in one country is higher than in another, that country's currency will probably tend to appreciate against the currency of the country with the lower interest rate. This affects foreign currency investments because investors may seek higher returns by investing in currencies of countries with higher interest rates.
